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OTC products aim to create more customizable solutions for each customer’s unique risk management needs. INTL FCStone Markets, LLC (IFM) was the first non-bank provisionally registered in swaps by the CFTC and has remained a leader in OTC for the past 25 years.

OTC products aim to create more customizable solutions for each customer’s unique risk management needs. INTL FCStone Markets, LLC (IFM) was the first non-bank provisionally registered in swaps by the CFTC and has remained a leader in OTC for the past 25 years.

OTC products aim to create more customizable solutions for each customer’s unique risk management needs. INTL FCStone Markets, LLC (IFM) was the first non-bank provisionally registered in swaps by the CFTC and has remained a leader in OTC for the past 25 years.

OTC products aim to create more customizable solutions for each customer’s unique risk management needs. INTL FCStone Markets, LLC (IFM) was the first non-bank provisionally registered in swaps by the CFTC and has remained a leader in OTC for the past 25 years.

OTC products aim to create more customizable solutions for each customer’s unique risk management needs. INTL FCStone Markets, LLC (IFM) was the first non-bank provisionally registered in swaps by the CFTC and has remained a leader in OTC for the past 25 years.

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It was another volatile week in the US dairy markets ahead of the long holiday weekend. The key theme last week was the convergence of spot and futures markets, which spent the better part of June wildly unhinged. Barrels on the CME jumped from $1.54 to $1.71 in just a few days last week (12 of the 16 loads traded Friday at $1.71) before finishing at $1.67, while the July-Dec Cheese futures ended Friday nearly unchanged from a week prior at $1.68 avg.

As we mentioned last week, convergence typically means that the recent trend is over. There is an outside chance this is not the case, but such convergences tells us that the “pot is right” so to speak. The futures made the move and are not willing to put any additional premium because the price rally is now apparently adequate. For new market bulls, the best case scenario is that the market bobs around current levels for a few weeks on a fishing expedition. Worst case for newborn market bulls (those who expect higher prices) is that the market has a material correction downward. Moving higher without any correction or sideways consolidation seems unlikely to us now.

This morning’s GDT will be of particular focus for this shortened holiday week. We expect today’s event to be steady to modestly lower (0 to -2%). Tomorrow traders will be sure to scrutinize the USDA’s dairy product report and export numbers for some historical reference.

FCStone’s estimates below show total cheese production up 1.8% in May over last year. American Cheese production we are looking for 0.3% increase or possibly a bit lower with the prolonged barrel premium to blocks. Last month’s report showed California’s American cheese production down 9.1%, while “other states” was down 2.1%.

May’s Restaurant Performance Index printed 100.6 down 0.9 from April on softer traffic and same store sales.

May’s cheese export numbers will likely show continued weakness. YTD cheese exports are down 33% as major markets S. Korea and Japan are off significantly.

We continue to see the trend of less WPC34 production as more priority is made for WPC80 and isolates as the whey stream has been searching for the most economical returns. YTD dry whey export volumes are down 20% while WPC’s are up 11% and Isolates are down 29%.

We look for Class III, Cheese and Dry Whey to open mixed to mostly lower.

Class IV, NFDM & Butter

The spot NFDM market on Friday dropped 3 ½ cents to 83 ½ on 17 trades. The market has softened from last week’s highs of 90 cents or $1,985/mt on the CME and most of the blame can go to a weaker Euro. Last week Dutch SMP prices decreased €20/mt to €1,720, German prices up €25 to €1,760, and French prices unchanged at €1,690. The market will debate the impact of the EU’s expansion of intervention to 350,000mt. Some are skeptical that these volumes will be filled for the remainder of 2016. A good barometer for the powder market’s health will be to watch the volumes entering intervention in the next month. With SMP being quoted slightly above intervention prices, indicating a supported market, some co-ops may be less willing to offer product into intervention. Today’s GDT auction we are looking for a weaker performance from WMP with SMP flat.

FCStone’s estimates for tomorrow’s Dairy Products report show NFDM production down 5.2%. More production will likely move into SMP as April’s production was up 30.7%. California’s NFDM production in April was down 21.4% which indicates a strong shift in production to meet export demands.

The spot butter market was quiet on Friday settling unchanged at $2.35. Butter futures were softer although we continue to see a firm undertone to this market. Tomorrows dairy products report we are looking for a 3.4% increase in butter production in May. Concerns still mount around consistent declines in California production. Seasonally now bulk butter production is on the decline as more cream is going to ice cream production. The market is remains tight as sellers are reluctant to offer as most of the inventories are spoken for. Retailers have been much more proactive hedging their needs, and some inventories especially in the Midwest may be earmarked for those buyers.

We look for Butter, NFDM and Class IV to open mixed.

Grains

The grain markets are set for an old-school open this morning having taken the entire Independence Day holiday off. It looks like a steady to lower opening across the board as global commodity prices are weaker as well. But the main factor is a pretty wet forecast ahead, with good rain coverage seen over the next 7-10 days after a wet weekend in the south.

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